When taking out a mortgage, to purchase a home in Nanaimo, one of the closing costs will be title insurance which protects the lender and is only a one-time charge. So what exactly is title insurance? It is a policy that covers third-party claims on a property that doesn't show up in the initial title search and arise after a real estate closing. The third-party can be anyone other than the property's owner, such as a utility service company that didn’t get paid for its services on the property under the previous occupant.
Do you need title insurance?
Having title insurance is not a requirement in Canada but considering a title document proves that you are the legal owner of a property it’s worth considering. It’s a good idea to discuss the purchase of title insurance with your lawyer or insurance broker/ agent before making the decision. Insurance experts will help you understand what type of protection title insurance can offer you and determine if other options exist.
However, title insurance mustn't replace legal advice when looking to purchase the property. For a one-time fee commonly referred to as Premium, the title insurance policy can protect the following type of losses:
- Errors in surveys and public records.
- Title fraud/ Identity theft.
- Unknown title defects that prevent you from having clear ownership.
- Existing liens against the property's title, such as unpaid utility bills.
- Encroachment issues like a structure on your property need to be removed because it is on your neighbour's property.
- Any other title-related issues that could limit your ability to sell, mortgage or lease your property.
What is title fraud
Title fraud, also known as real estate fraud, is a type of identity theft that targets individual homeowners and their lenders. To gain access to the title document, the fraudster starts by using stolen personal information or forged documents to transfer, sell or apply for a new mortgage without your knowledge.
Real estate fraud can cause pain and significant financial losses to the homeowner. If you have been a victim of title fraud, you are liable to receive compensation for your loss if you submit a claim through the government’s Land Titles Assurance Fund (LTAF). To support your claim, write down the moment you noticed the fraud, the actions you took and the names of people you spoke to, including dates of communication.
You should file a report with your local police and also contact any company or financial institution you think might be affected, contact the provisional land registry office, contact the Canadian anti-fraud centre and remember to contact the two credit rating companies, either Equifax or TransUnion and ask them to put a fraud alert on your file.
Types of title insurance
Title insurance comes in two different types, owner's title insurance and lender's title insurance, also known as a loan policy. A lender's title insurance policy protects the company's financial interest that issues the mortgage, ensuring the lender has the complete claim on the property above any liens. This means you will have to purchase a lender's title insurance whenever you take out a mortgage, refinancing, or purchase a new property. In contrast, the owner’s title insurance focuses on protecting the homeowner instead of the lender. The coverage amount is usually equal to the purchase price and remains constant as long as you or your heirs own the home. The policy is optional and only needs to be purchased once.
Though title insurance is not a requirement in Canada, it should be a great option to avoid massive property losses. As the world gets more connected and synchronised thanks to the internet, cases of identity theft-related frauds have been on the rise. Without title insurance, you may be open to title fraud schemes.